(EnergyAsia, July 12 2012, Thursday) — Reeling from slowing demand growth and oversupply, US coal markets are reeling and hurting listed coal stocks that were among the best performers in recent years.

Coal stocks are likely to remain under pressure after Monday’s announcement by Patriot Coal Corp that it had filed for bankruptcy.
 
The share prices of James River Coal Co, Alpha Natural Resources, Arch Coal, Peabody Energy and Consol Energy have been among those badly hit by Patriot’s Chapter 11 move.

Coal prices have been coming under pressure from new Environmental Protection Agency rules governing emissions from coal-fired power plants and US power companies switching to using cheaper natural gas.

Coal demand from China and India, two of the world’s largest coal users, has also slowed down in recent months on account of weaker economic growth.
 
On Monday, Patriot Coal, a producer and marketer of coal products in eastern US, announced it was filing for Chapter 11 reorganisation to “improve the company’s long-term prospects.”

Patriot said it expects to continue mining operations and customer shipments as normal under the protection of a court-supervised reorganisation process while it seeks out new financing and address financial challenges.

The company said it has obtained a US$802 million commitment in debtor-in-possession (DIP) financing from Citigroup Global Markets Inc, Barclays Bank PLC, Merrill Lynch, and Pierce, Fenner & Smith Incorporated as joint lead arrangers.

Upon approval by the Bankruptcy Court, Patriot said the new financing and cash generated from ongoing operations will be used to support the business during the reorganisation process.

Patriot chairman and CEO F. Engelhardt said:

“The coal industry is undergoing a major transformation and Patriot’s existing capital structure prevents it from making the necessary adjustments to achieve long-term success. Our objective is to use the reorganisation process to address important issues in an orderly way and make the company stronger and more competitive.”

Patriot said its business outlook has been impacted by reductions in US thermal coal demand due to competition from low priced natural gas, environmental regulations affecting the cost of producing and using coal, the weakened outlook for the domestic and international economies, customers cancelling contracts, declining thermal coal prices and rising expenditures.

In response, the company has reduced production while raising export sales.